Company in liquidation with tax liabilities relieved of nearly $3m in directors’ loans

A loan of nearly $3 million has been cleared for recovery from two former directors after the Federal Court granted a company’s right to indemnity of director loans to repay Commissioner of Taxation liabilities.

Former directors Benjamin Chow and Dr Roberta Chow have been ordered to pay back a director’s loan of $2,551,330 to Sydney Subdivision, which went into liquidation in mid-2015 after becoming liable to the Commissioner for amounts of primary tax, interest and penalties, in the sum of $2,602,191.05.

This recovery was on the grounds of the directors’ liability on the basis of an equitable proprietary interest in the assets of the trust.

“The basis of the Applicants’ claim is one seeking the former trustee’s entitlement to indemnification and commensurate equitable proprietary interest in the trust assets of the Chow Family Trust. However, the only asset identified is the Directors’ Loan,” the court said.

These loans were taken out between the financial years ending 30 June 2004 and 30 June 2012.

Sydney Subdivision was appointed trustee of the Chow Family Trust in 1980 and carried on activities as trustee.

“Mr Chow performed personal services in the nature of engineering and project management services for various clients. The Chow Family Trust issued invoices to Mr Chow’s clients for the work he provided to those clients, in the trading name of Benjamin Chow & Associates,” the court said.

“Dr Chow is a medical doctor, who also holds a PhD. Dr Chow performed medical services. The Chow Family Trust issued invoices to Dr Chow’s patients for the work she had performed.”

The running accounts

The court found that Mr and Dr Chow would withdraw money from the trust when needed and either pay it to their joint bank account or pay their credit cards to fund their lifestyle or to pay for expenses for the trust.

“This, it was submitted, was on the basis that they would have gone into the loan relationship with an expectation that they could move money back and forth between themselves, personally and the Chow Family Trust when and as they pleased.

“Furthermore, this also supports a finding that the Directors’ Loan was not a simple loan of money, but more akin to the concept of a running account, a line of credit or revolving credit, it being a loan or credit facility that the Respondents had with the Chow Family Trust from which they drew and repaid time and time again.

“There was no expiration or requirement for the entire amount to be paid immediately, nor was it is a simple loan for a fixed sum at a particular point in time.”

The amount of the loan changed in the company’s financial statements for the years ending 30 June 2005, through to and including 30 June 2012.

After Sydney Subdivision commenced winding up in mid-2015, the liquidators demanded the repayment of the directors’ loans later that year.

“Mr Chow gave evidence that when he withdrew money out of the bank account of the Chow Family Trust he gave little or no thought as to the legal character of what he was doing or of the character of those funds,” the court said.

“Mr Chow was of the opinion that it was the accountant’s responsibility to apply the appropriate characterisation and to properly account for such transactions, at the time of preparing the financial statements.”

The court found that there had not been a written agreement for the loan, and that the terms of repayment were implied and the loans were taken out on the basis of a running account.

“Therefore, the Directors’ Loan was not immediately repayable, either when amounts were lent, or at the end of any identified financial year. A separate demand prior was required. The written demand of the Liquidator on 19 October 2015 satisfied this requirement,” the court said.

“I accept (and find) that there is no proper basis (or evidence) relied on by the Respondents that the Directors’ Loan had been repaid. I also accept (and find) that the Directors’ Loan were still and due owing to the Chow Family Trust in the amount of $2,551,330 at the time of the appointment of the Liquidator.”

Upon consideration of all evidence, the court determined that Sydney Subdivisions was entitled to relief for the director’s loans.

“I will hear from the parties as to the appropriate form of final orders given that some of the relief sought by the Applicants in its Pleading has already been granted, because the Liquidator has also been appointed the Receiver, over all present and after acquired property, rights and undertakings of the Chow Family Trust and because the form of final orders can vary.

“I will also make timetabling orders, for the provision of submissions and any necessary affidavits, relating to costs,” the court said.

The case citation: Sydney Subdivision Pty Ltd (in liq) v Chow (No 4) [2026] FCA 1435 (30 September 2026)